The bonus blame game continues in Washington.
The uproar over millions that was paid to top executives of the failed insurance company AIG had politicians grilling Ben Bernanke, the head of the Federal Reserve, and Treasury secretary Timothy Geithner.
Bernanke said AIG had to be saved to avoid it triggering a 1930s style worldwide economic collapse.
He testified that he tried to block the bonuses, but was advised against it for legal reasons.
Bernanke said for the future everything will be closely checked: “We have pressed AIG to ensure that all compensation decisions are covered by robust corporate governance, including internal review, review by the compensation committee of the board of directors and consultations with outside experts. Operating under this framework, AIG has voluntarily limited the salary, bonuses and other types of compensations for 2008 and 2009 for the CEO and other senior managers.”
Geithner tried to move the focus off the past onto the future when he said: “Now this issue of executive compensation extends beyond AIG and requires substantial reform of the incentives and compensation throughout the financial sector. As we move forward, we need to ensure that taxpayer resources do not reward failure, but are used to get our financial system back to the business of providing credit – on reasonable terms – to American businesses and families.”
Geithner and Bernanke asked for new powers to regulate huge financial companies like AIG that get into trouble and whose collapse could have a devastating effect on the economy.